US blocks China

US has blocked the sale of money-transfer service Moneygram to Ant Financial, an affiliate of Chinese e-commerce giant Alibaba. The sale had been worth $1.2 billion.

Is this a signal of further strain in the U.S.-China relationship?

Background

Alibaba Group Holding Limited is a Chinese e-commerce, retail and technology conglomerate founded in 1999 by Jack Ma and Leng Lei that provides consumer-to-consumer, business-to-consumer and business-to-business sales services via web portals, as well as electronic payment services, shopping search engines and data-centric cloud computing services. It also owns and operates a diverse array of businesses around the world in numerous sectors. In 2012, two of Alibaba's portals handled 1.1 trillion yuan ($170 billion) in sales. At closing time on the date of its initial public offering (IPO), 19 September 2014, Alibaba's market value was US$231 billion. As of November 2017, Alibaba's market cap stood at US$486.27 billion. It is one of the top 10 most valuable and biggest companies in the world.

Ant Financial Services Group is an affiliate company of the Chinese Alibaba Group. Ant Financial is the most valuable fintech company in the world. It operates Alipay, the world's largest mobile and online payments platform as well as Yu’e Bao, the world's largest money-market fund.

In 2017 it was announced that Li Ka-shing chairman of CK Hutchison Holdings and Jack Ma Yun would launch a new venture that will expand the digital payments industry in Hong Kong. This will be a 50-50 joint venture that will integrate online and offline Hong Kong dollar payments under the AlipayHK brand.

Analysis

On January 2017 it was announced that Ant Financial would be buying US-based MoneyGram for $880m (£700m). MoneyGram International Inc. is a money transfer company headquartered in Texas. At the time, Eric Jing, chief executive at Ant Financial, said in a statement that the marriage of the two companies would "provide greater access, security and simplicity for people around the world to remit funds, especially in major economies such as the United States, China, India, Mexico and the Philippines". The announcement came shortly after Jack Ma held a meeting with US President Donald Trump. During this meeting he promised to create about a million jobs in the US.

It has now been revealed that United States has blocked the sale which was worth $1.2bn (£880m). In a joint statement the two companies confirmed the news and stated that they had abandoned the deal after failing to "obtain the required approval for the transaction from the Committee on Foreign Investment in the United States, despite extensive efforts to address the Committee's concerns". Ant Financial and MoneyGram attempted to address the committee's concerns, Moneygram CEO Alex Holmes said. "The geopolitical environment has changed considerably since we first announced the proposed transaction with Ant Financial nearly a year ago," he said in a statement. "Despite our best efforts to work cooperatively with the U.S. government, it has now become clear that CFIUS will not approve this merger.

US President has often complained about the “very unfair and one-sided" trade relationship that the US shares with China. The two companies said they do plan to collaborate on improving global money transfers especially in China, India and the Philippines. "While Ant Financial won't have a direct ownership relationship with MoneyGram, we look forward to working closely with the MoneyGram team to make our platform even more accessible - particularly to unbanked and underserved communities globally," said Ant Financial president Doug Feagin in a statement.

This isn’t the first Chinese company blocked by the US. The US President was directly involved in the blocking of the sale of Lattice Semiconductor to a Chinese company called Canyon Bridge Capital Partners. The deal was reportedly worth $1.3 billion.

Scott Kennedy, director of the project on Chinese business and political economy at the Center for Strategic and International Studies in Washington said, “China doesn't have a reputation of providing a great deal of protection for privacy and private data. It may be that Alibaba is sort of caught in the dilemma of being a company from China .... It's very difficult to shake that off. This case ... needs to be analysed on its own independent merits, but the broader trend is definitely in a tighter direction," he said. "There's a growing Washington consensus that China plays unfair.”

Assessment

Our assessment is that the blocking of this sale is indicative of the uneasy relationship between US and China especially regarding trade. The US President has been vocal regarding what he deems as “unequal” trade practices that have been employed so far. Other sales that are currently threatened by the political climate include the China Oceanwide Holdings Group's $2.7 billion purchase of US life insurer Genworth Financial and the acquisition of US mobile marketing firm AppLovin by Orient Hontai Capital's $1.4 billion.